FHA cosigner requirements

You found the perfect house; unfortunately, the loan officer told you that
your debt to income ratio is too high. The debt to income ratio is a simple
formula lenders use to determine the maximum monthly mortgage payment. Many
first time homebuyers saddled with student loans, credit card debt and car payments
often find it difficult to qualify for a mortgage.

What can you do to qualify for the house? The solution is a cosigner.

The FHA loan program permits a mortgage co-signer. The cosigner is an additional
applicant on the mortgage application. The income, assets, liabilities, and
credit history are joined with the borrower/homebuyer in determining mortgage
approval. If the combination of income and debt is within the debt to income
ratio, the loan will be approved, providing all the other requirements of the
FHA home loan are met. A co-signer's good credit and higher income can help
support an applicant with a poor credit history.

Cosigners are required to have a valid Social Security number and must reside in
the United States or its territories. Cosigners must sign all loan papers and
may or may not be on the title for the home; and are liable for repaying the
mortgage if the borrower/homebuyer does not pay the mortgage.

Who can be a cosigner?

FHA cosigners who are related by blood, marriage, or law include:
aunts & uncles,
children,
nieces-nephews,
parents,
siblings,
stepchildren,
spouses and
unrelated individuals who can document a longstanding, substantial family like relationship not arising out of the loan transaction are also permitted
co-signers.

Cosigners must provide the lender with two years employment income and
residency. Non-permanent aliens are permitted cosigners so long as the main borrower is a
US citizen and the primary resident.

Only a one unit house or FHA approved condominium can be financed with the
minimum FHA down payment when using a cosigner.

The FHA prohibits a non-occupying co-borrower to purchase investment properties
or rental units.

The only way to remove the co-signer from the loan is to refinance the mortgage,
although the FHA offers an easy refinance option with the
FHA streamline refinance
program.

The Dark side of Co-signing

If the borrower defaults on the loan, the co-signer is legally obligated to
repay the entire mortgage balance in the event of a mortgage default. And that’s
not all:

The debt obligation will also show up on the cosigner's credit report. And if
the borrower misses a payment, the late payment will show up on the cosigner's
credit report.

The co-signed loan can possibly affect the cosigner’s ability to obtain
additional credit under their name.

The calculators and information contained herein are made available to
you as a self-help tool for illustrative use only. Examples are hypothetical.
We can not and do not guarantee the applicability or accuracy in regards
to your individual circumstances. I encourage you to seek personalized advice
from qualified professionals.